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Monday, June 02, 2014

Compounded Annual Growth Rate of Software

Last week, I attended Software Experts Summit 2014 organized by IEEE Software in Bangalore. Having seen the videos of the previous summit, I thought it is worth investing to understand the advances in Software. There were several speakers from India and the world who covered various topics like Analytics, Big data, Need for Innovation and Speed, Architecture of Watson. In this blog post I would like to share with you a new metric that I learned. It is called Compounded Annual Growth Rate(CAGR) and was coined by Michiel van Genuchten and Les Hatton, based on the analysis of various software industry reports over the past four years.

IEEE Software is a bimonthly publication of IEEE Computer Society. Apart from several articles from academics, this also has a column called Impact, which features industry reports highlighting the software challenges with focus on software growth as reflected in two metrics, namely the Lines of code(LOC) and volume of units sold. In 2012, based on 10 data points such as Tokyo railway system, Mars Discovery, Higgs Boson discovery, oil and gas simulation, Michiel and Les came up with a "Compounded Annual Growth rate"(CAGR) metric. Based on the LOC metrics provided for the early phase of the application and the recent release, the team computed the CAGR. Median CAGR was found to be 16%. In July 2013 magazine article (paywalled), they recomputed the metric including the additional data from application domains such as Oracle, Airbus, Mars lander. The metric was determined as 17%.

The metric was found to be useful for determining the hardware platforms of the future to support the future software. It can also be used to determine the health of the organisation as the metric will be low, when the organisation is dealing with bug fixes or addressing technical debt rather than new feature development. So far the metric has proved to be relevant irrespective of the complexity of the application and domain.

Have you tried using this metric or any other innovative metrics? Look forward to hearing from you.